Suppose that you are the managing director of MLK Auto Company, which is conside

Question

Suppose that you are the managing director of MLK Auto Company, which is considering expanding its business to China. You wish to produce your auto parts within Chinese borders so that you can lower your labor costs and therefore lower production costs. You realize that you are not fully aware of the detailed economic environment, cultural barriers, and legal issues associated with operating a business within that country. Discuss the best entry method to use for this situation in order to establish production within the Chinese market.

Explanation / Answer

In my opinion, the best entry mode to Chinese markets for MLK Auto Company would be licensing. As we are not aware of the economic environment, cultural barriers, and legal issues associated with operating the automobile business in China we need to find an agency that has good knowledge of all these factors related to Chinese market. Licensing would allow us to produce the auto parts at low cost by giving the permission for using the technical knowledge to manufacture the products for the licensee located the China through the licensing agreement. The method would help us to get our payments in the form of royalty for using our intellectual properties like trademark, expertise and design and a percentage of revenue from the products sold under the license. This method will allow us to establish our production in Chinese market without much investment and knowledge on the market and make more profit without much risk involved. The influence of the licensee in Chinese market would help to make profit without additional investment. Hence I would prefer Licensing.

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